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EDITORIAL ANALYSIS : The rise of rural manufacturing


Source: The Hindu

  • Prelims: Rural economy, world bank, ASI report etc
  • Mains GS Paper I & II: Government policies and interventions for development of various sectors and issues arising out of it etc



  • There is growing evidence that there has been a shift of manufacturing activity and employment from bigger cities to smaller towns and rural areas.




Constitutional Provisions Related to Rural Development in India:

  • Article 40: State shall take steps to organize village panchayats and endow them with such powers and authority as may be necessary to enable them to function as units of self-government.
  • 73rd Constitutional Amendment Act: build democracy at the grass roots level and was entrusted with the task of rural development in the country.
  • Eleventh Schedule of the Constitution: It places 29 functions within the purview of the Panchayati Raj bodies including agricultural extension, land improvement, implementation of land reforms etc.


Rural India:



Study of Urban-rural shift:

1.Policy Research Working Paper(World Bank):

  • The study investigated the urbanization of the Indian manufacturing sector by “combining enterprise data from formal and informal
  • Manufacturing plants in the formal sector: They are moving away from urban areas and into rural locations, while the informal sector is moving from rural to urban locations”.
  • Reason for the shift:
    • Urban-rural cost: results suggested that higher urban-rural cost ratios caused this shift.
  1. 2. Annual Survey of Industries for 2019-20:
  • It shows that the rural segment is a significant contributor to the manufacturing sector’s output.
  • Factories and fixed capital: 42% of factories are in rural areas, 62% of fixed capital is in the rural side.
  • Investment: Result of a steady stream of investments in rural locations over the last two decades.
  • In terms of output and value addition: rural factories contributed to exactly half of the total sector.
  • In terms of employment: It accounted for 44%.
    • but had only a 41% share in the total wages of the sector.


Reasons for shift of manufacturing away from urban locations:

  • Factory floor space supply constraints: When locations get more urbanized and congested, the greater these space constraints are.
  • Continuing displacement of labor by machinery as a result of the continuous capital investments in new production technologies.
  • Expansion of factories: In cities, factories just cannot be expanded as opposed to rural areas.
    • Thus, increased capital intensity of production is one reason for this trend.
  • Production cost differentials: Many firms experience substantially higher operating costs in cities than in rural areas
    • firm’s profitability and competitiveness in rural areas.
  • Possibility of capital restructuring(approach advocated by radical and Marxist geographers):
    • Growing capital accumulation and centralisation by large multi-plant corporations.
    • Big firms deliberately shift production from cities because:
      • Availability of less skilled
      • Less unionized
      • Less costly rural labor.


What are the challenges to the shift?

  • The cost of capital: It seems to be higher for firms operating on the rural side.
    • Evidence: The rural segment accounted for only 35% of the total rent paid, while it had 60% of the total interest payments.
  • The benefits reaped from one source seem to be offset by the increased costs on the other front.
  • Skills shortage” in rural areas: Manufacturing now needs higher skilled workers to compete in the highly technological global ‘new economy’.
  • Inadequate supply: Manufacturers who need higher skilled labor find that rural areas cannot supply it in adequate quantities.


Way Forward

  • Balanced regional development: Given the size of the Indian economy and the need for balanced regional development, the dispersal of manufacturing activities is a welcome sign.
  • The shift in manufacturing activities from urban to rural areas: It has helped maintain the importance of manufacturing as a source of livelihood diversification in rural India.
  • To overcome loss of employment: This trend helped to make up for the loss of employment in some traditional rural industries.
    • The growth of rural manufacturing, by generating new jobs, thus provides an economic base for the transition out of agriculture.
  • A more educated and skilled rural workforce: It will establish rural areas’ comparative advantage of low wages, higher reliability and productivity and hasten the process of the movement out of agriculture to higher-earning livelihoods.



Q. Economic growth in the recent past has been led by an increase in labor activity.” Explain this statement. Suggest the growth pattern that will lead to creation of more jobs without compromising labor productivity.(UPSC 2021) (200 WORDS, 10 MARKS)